There's Extreme Fear Among Investors, Despite Stocks Being Down Just a Few Percent

The Market

The growth folks are hysterical. How can this happen to our beloved growth stocks? Down 30-40% in a week?

The value folks are tentative. Could this finally be the turn? Of course, when the value stocks rally and folks get excited, it’s because they might be up 10-15%, not 40% as the growth stocks are when they soar.

But that allows for the sentiment to get like it is. The value folks are thinking, not bad. The growth folks think Armageddon. I think sentiment is somewhere in between.

I think it has surely backed off from the complacency. There is a lot more chatter about a growth scare or a slowdown. There are even folks citing Consumer Sentiment surveys as a reason to be cautious. That’s probably why the Fear and Greed Index is now at 23, or Extreme Fear, with the S&P down less than three percent off the high.

But we have seen the put/call ratio rise. It has now been over .90 for two straight days. It’s been months since we’ve seen that. We’ve seen the ISE Equity call/put ratio at its lowest level since early September. These are all necessary moves to get a change in sentiment.

The biggest tell for me, though is that the net volume on Nasdaq, where all that speculation has resided for months now, has been red for four straight days. Please realize that this is the longest losing streak for this breadth indicator since March. Almost one year. So that shows me folks’ appetite for growth stocks and speculative stuff has waned.

I keep trying to find a point of oversold, even on a short-term basis and I simply cannot come up with one yet. The earliest I see is next week. That doesn’t mean we shouldn’t rally before then—heck, I’d be shocked if we didn’t—but I just don’t see a good oversold condition until then.

The only indicator I have that is closing in on an oversold reading is the ‘what if’ for the Nasdaq McClellan Volume Summation Index. It now needs a net differential of +9.6 billion shares to halt the decline.

But Nasdaq saw a large jump in stocks making new lows today. That’s a plus because it means folks got scared enough to sell. It’s a negative because I like to see it contract, not expand. If we bounce for a day or so and then come back down, we might see contracting new lows at the same time we’re getting oversold.

New Ideas

When we looked at Amazon AMZN a few days ago, I thought it would bounce off 215 and fail. Instead, it collapsed to 205 and then bounced, closing just barely green. I think it rallies to the underside of that line.

ITB couldn’t break down, so now let’s see if it can map out as I have drawn in blue.

Today’s Indicator

The NYSE McClellan Summation Index is still heading down. Breadth was solidly green today, so it now needs a net differential of +900 advancers minus decliners to halt the decline. If they decide to buy growth stocks, then breadth probably goes red.

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Verizon VZ has had a heckuva run (for Verizon!), but it has resistance from here on out. And it is over-extended. I’d be in favor of taking a little bit off the table on a trading basis.

While I have liked Boeing BA since November, in the last few weeks, I have said I would like a pullback from this resistance area. I currently have my eye on the 165 area for that pullback.

MicroStrategy, which is apparently now just Strategy MSTR, has broken down. There is a measured target around 200 and that is where the uptrend line comes in. In the very near term, it is oversold. A rally that can’t get over 275 would have me looking for 200, likely by mid-March. A rally that can get to that 300-ish area would push that next leg down out in time.